Contrasting Employment Agreements in the US and the UK

UK companies first entering the US market are often surprised at the relative lack of formality associated with US employment relationships.

Firstly, in the US, written employment agreements are the exception, rather than the rule. There is, for example, generally no requirement that the rate of pay (or other terms of remuneration), hours of work, or other particulars of the employment relationship be provided to the employee in writing. Indeed, a mere oral explanation of these particulars is legally sufficient and common.

Secondly, even when a US employer does offer a written employment agreement, it is rare for that agreement to include the written particulars that would be required of a UK employer. For example, there is generally no legal requirement for a US employer to have written disciplinary rules or procedures, much less for those rules or procedures to be provided to employees. Indeed, for small employers, such rules and procedures are unlikely to exist.

Even those US employers who do have written disciplinary rules or procedures are careful not to include them in an employment agreement. Instead, those rules or procedures are usually announced through a company handbook that specifies that it is not an employment agreement and that it gives rise to no enforceable contract rights. Through this means, US employers are careful to maintain their discretion in such matters.

Thirdly, whilst in the UK employers are required to notify their employees of the notice to which they are entitled prior to termination and of the amount of remuneration to which they are entitled upon termination, such rights do not exist under US law (except in the case of certain plant closings and mass layoffs). In the US, employees generally serve “at will” and may be terminated for any reason or no reason, with no notice. (Federal, state, and some local anti-discrimination laws modify this rule in certain circumstances by prohibiting discrimination based on protected classifications such as race, color, national origin, religion, gender, or disability.) This “at will” status is the default employment status for US employees which can be altered only if a contract – written or sometimes oral – exists that limits the employer’s right to terminate at-will.

A US employer is likely to offer a written employment agreement in the following two circumstances:

• When the employer seeks to impose restrictive covenants. To be enforceable, non-competition agreements (which prevent an employee from working for a competitor following termination) typically must be in writing. (Even when they are in writing, US courts are reluctant to enforce them. In some states – such as California – they are entirely unenforceable.) In addition, usually non-competition agreements are only enforceable if they are ancillary to an employment agreement or if some other additional bargained-for consideration is provided in exchange for the agreement not to compete. Similarly, non-solicitation agreements (which prevent an employee from soliciting his or her former employer’s employees or customers following termination) typically must also be in writing to be enforceable. Thus, an employer who wishes to impose such restrictive covenants often has little choice but to do so as part of a written employment agreement.
• When it is necessary to attract highly sought-after employees. Some employees – most notably, executives or the highly skilled – have sufficient market power to successfully demand a written employment agreement that alters the at-will nature of the relationship. Often such agreements protect the employee by: (a) limiting the circumstances in which the employee can be terminated; (b) requiring notice prior to termination; or (c) offering post-termination benefits such as severance.Finally, compared to the UK, the law in the US superimposes far fewer legal obligations on the employer-employee relationship. While the US does have minimum wage, workplace safety, and overtime requirements, many features characteristic of the UK employment relationship simply find no parallel in the US. For example, in the US the employer has no duty to provide work to the employee. (For this reason, so-called “garden leave” clauses – common in the UK – are not used in the US.) Similarly, the US employer has no duty analogous to the UK employer’s duty to treat employees with respect, due consideration, or courtesy. Finally, absent an employment agreement that alters the at-will nature of the employment relationship, US law affords the employee no protection against “unfair dismissal.”